From Wall Street to Wal-Mart

Why College Graduates Are Not Getting Good Jobs

Colleges and universities are turning out graduates faster than America’s labor markets are creating jobs that traditionally have been reserved for those with degrees. More than one-third of current working graduates are in jobs that do not require a degree, and the proportion appears to be rising rapidly. Many of them are better described as “underemployed” rather than “gainfully employed.” Indeed, 60 percent of the increased college graduate population between 1992 and 2008 ended up in these lower skill jobs, raising real questions about the desirability of pushing to increase the proportion of Americans attending and graduating from four year colleges and universities. This, along with other evidence on the negative relationship between government higher education spending and economic growth, suggests we may have significantly “over invested”  public funds in colleges and universities.

By Richard Vedder, Christopher Denhart, Matthew Denhart, Christopher Matgouranis and Jonathan Robe | December 2010

Download the entire report (pdf, 12 pp.)

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There are many reasons for pursing a higher education. A few persons revel in the intellectual excitement of academic exploration, others “consume” not only the knowledge that college provides but all the social dimensions associated with it—alcoholic stimulated parties, erotic adventures with new friends, athletic events and intramural sport participation, etc. But for most persons, a significant, maybe even the dominant reason, for going to college is that it supposedly will improve one’s prospect of acquiring a good job. In a sense, a college degree has long been considered a ticket to the middle class—an adult life with a good income and relatively high job security. From the standpoint of society, efforts to expand college graduation attainment rates have been justified by President Obama and major foundations (for example, Lumina and Gates) on a need to be competitive with other nations which have a larger proportion of adults with college degrees.

This study argues that the conventional wisdom that going to college is a “human capital investment” with a high payoff is increasingly wrong. Evidence shows that currently more than one-third of college graduates hold jobs that governmental employment experts tell us require less than a college degree. That proportion of underemployed college graduates has tripled over the past four decades.

In 1976, Harvard economics professor Richard Freeman wrote about The Over-Educated American—at a time when most college graduates, at the margin, entered professional, managerial and scientific positions traditionally considered jobs for college graduates. If we were “overeducated” at that point in time, what is the case today? Moreover, the push to increase enrollments has led to a majority of the increment of our stock of  college graduates finding employment in relatively low skilled jobs, most of which are not particularly high paying (although there are exceptions). We added roughly 20 million college graduates to the population between 1992 and 2008, for example, but the number of graduates holding jobs requiring less-than-college education skill sets rose during that same period by about 12 million; in other words, 60 percent of the total increase in graduates over the past two decades was underemployed. Anecdotally, most persons can see this is their everyday lives. For example, the senior author was startled a year ago when the person he hired to cut down a tree had a master’s degree in history, the fellow who fixed his furnace was a mathematics graduate, and, more recently, a TSA airport inspector (whose job it was to insure that we took our shoes off while going through security) was a recent college graduate. Actually, these individuals are far more typical of many recent college graduates than is commonly supposed.

As college costs and the debts associated with them rise, the payoffs in terms of occupational attainment becomes more problematic as graduates cannot find high paying college-level jobs, and a growing number of Americans obtaining college degrees are incurring high ratios of college debt to earnings. The cost of a degree has grown vastly faster than the financial gains associated with that degree (according to the Census Bureau, median college graduate earnings in real terms were lower in 2009 than in 1998, even though college costs were much lower), which is precisely why more and more observers say we are entering a “college tuition bubble” not dissimilar to the housing bubble that precipitated the 2008 financial crisis.

The observation that America today is oversupplied with college graduates is not a novel one. Indeed, over the past several decades, a number of scholars, across the political spectrum, have argued forcefully that there is a growing disparity between the supply of highly educated American workers and the demand for those individuals in highly skilled jobs. In the early 1990s, Hecker (1992) noted, in research for the Bureau of Labor Statistics, that “there are more jobseekers with college degrees than there are openings in jobs requiring a degree.” Following up on this research, Pryor and Schaffer showed that even after adjusting Hecker’s data, the upward trend in the rate of college graduate underemployment persisted over time and that the college graduates who possessed a high level of skill were the ones in high paying, high skilled jobs; college graduates with low potential and ability were left with high-school level employment. Edwin Rubenstein (1998) took this data further to argue that the commonly cited college payoff is more of an illusion than reality and that public policy designed to increase the proportion of Americans with college degrees is misguided and economically indefensible, a conclusion which Merisotis and Phipps (2000) called “alarming” precisely because it directly undermines the cherished pedestal upon which higher education rests. More recently, Wolff (2006), in a detailed examination of employment data, showed that there is a significant disconnect between the growth in the number of highly educated workers and the jobs requiring high levels of training. In addition to these scholarly investigations, some discussions of this topic appeared in the popular level press.

All of this helps explain a phenomenon one of us observed years ago, namely that increased state government appropriations for higher education are negatively associated with economic growth—more spending on higher education correlate with lower rates of growth (Vedder 2004a, 2004b). The reason this empirical finding exists may well be that, at the margin, the resources used to get additional college graduates have little or no economic return to them, and we are diverting funds to college education and away from more productive investments with higher rates of return.

Download the entire report (pdf, 12 pp.)

Richard Vedder is Director of the Center for College Affordability and Productivity, distinguished Professor of Economics at Ohio University, and a visiting scholar at the American Enterprise Institute. He is the author of Going Broke By Degree: Why College Costs Too Much, and he has written and lectured widely on the cost of higher education. He received a BA from Northwestern University and a MA and PhD from the University of Illinois.

Matthew Denhart is Administrative Director of and Research Associate at the Center for College Affordability and Productivity.

Jonathan Robe is a Research Associate at the Center for College Affordability and Productivity.

Christopher Denhart and Christopher Matgouranis are Research Assistants at the Center for College Affordability and Productivity.